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As S&P calls for income growth, surges appear to prefer top-earners

Mar 08, 2012 Philip Burgess

A new report from the Capital IQ division at Standard & Poor's argues that sustained income growth is needed to keep the U.S. economic recovery on track. Analysts pointed to wage growth and reformed tax policy as likely to drive the surge in disposable income, which is needed to drive sales, boost company profits and, ultimately, increase hiring. An improving outlook in the credit market may also help bolster this scenario, as a wider availability of loans and credit cards may incite Americans to spend. This may also lead to a rise in debt collection activity. "More than any other single factor, the U.S. economy now requires sustained disposable income growth, coming from some combination of wage growth and tax policy, if the recovery is to remain on track and avoid recession, in our opinion," S&P Capital IQ reported. "GMI Research will continue to follow the U.S. employment situation in conjunction with monitoring discretionary consumer spending for signs of stress should retail gasoline prices eclipse $4.00 per gallon." The economic situation in Europe continues to plague market projections in the U.S., as analysts are largely uncertain about its full impact and potential. As the eurozone continues to struggle with sovereign debt crises, the risk environment for markets on both sides of the Atlantic intensifies. "But the risk premium in the five-year [credit default swap] for the U.S. has declined to levels not seen since mid-2010, which we think reflects the credit market's confidence in the U.S. economy," S&P added. As S&P calls for sustained income growth across all market sectors, it appears as though at least one segment of the population has enjoyed such returns: top earners. According to data released this week by the Internal Revenue Service, adjusted gross income totaled $8 trillion in 2010, up 5.2 percent from the previous year. However, taxpayers earning more than $250,000 saw total adjusted gross incomes rise by 13.8 percent. Households bringing in $200,000 to $250,000 enjoyed a 6.7 percent increase, while those making between $50,000 and $100,000 saw their yearly earnings nudge upward by a mere 1.5 percent. "Overall, salaries and wages grew 2.1 percent," CNNMoney reports. "But the super-rich saw an 11.2 percent hike, and those just below them enjoyed a 4.6 percent increase. But the middle class saw a drop of 0.7 percent in wages."